EPA Considers Expanding Air Emissions Trading

[Timber Loftis]

Whitman Considering Emissions Trading
Beyond Power Plants' Clear Skies Initiative

The Environmental Protection Agency is considering emissions trading for programs beyond President Bush's Clear Skies Initiative for reducing power plant emissions, Administrator Christine Todd Whitman said May 1.
"Never underestimate the power of the market," Whitman told an EPA conference on market mechanisms and incentives.

Clear Skies would set an emissions cap on sulfur dioxide, nitrogen oxides, and mercury, to achieve roughly 70 percent reductions by 2018 through an emissions trading program. Whitman and other administration officials are pushing strongly for congressional passage of Clear Skies this year or next.

However, Whitman said EPA also will seek to use economic incentives to encourage landowners to protect watersheds, "and do it faster than it would coming out of Washington."

She said she also wants to use market incentives for protecting wetlands.

Assistant Administrator for Air and Radiation Jeffrey Holmstead said that if pollution reductions can be made into valuable, tradeable commodities, businesses would have much more incentive to reduce emissions.

G. Tracy Mehan, assistant administrator for water said using emissions trading could lower the cost of reducing water pollution in some watersheds by as much as 80 percent.


Market Mechanisms Said to Be Successful

Emissions trading gives companies or individuals credit for reducing pollution below required levels. These credits can be banked to cover future emissions or sold. In some programs, such as the 1990 acid rain program, emissions trading has proven to be a faster, cheaper, and more flexible way to reduce emissions than traditional programs, in which regulators tell each pollution source how much to reduce emissions.
Mehan said he envisions the creation of a nutrient trading program for the Upper Mississippi River Basin that would improve local water quality, while reducing nutrient runoff mostly from fertilizer that has created a vast dead zone in the Gulf of Mexico. Farmers could get credit for conservation farming practices to reduce runoff, Mehan said.

Holmstead said the agency used market-based mechanisms to speed the elimination of lead from gasoline, as well as the phase-down of chlorofluorocarbons and other ozone-depleting chemicals.

The agency has gone from opposing the use of market mechanisms to incorporating trading whenever it can, Holmstead said, and is looking for more opportunities.


California Index of Volatile Organic Compounds

Holmstead pointed to an index of volatile organic compounds developed by California, based on the compounds potential to cause ground-level ozone formation, as a possible basis for a trading program to reduce ozone pollution.
Ozone is formed when VOCs or NOx react in sunlight. Different VOCs have different potential to cause ozone formation, Holmstead said. For example, the ozone-forming potential of xylene is "an order of magnitude"greater than ethanol, he said, yet state implementation plans give companies the same credit for reducing any kind of VOCs.

Using the California VOC index, companies could get 10 times more credit for reducing emissions of a VOC such as xylene than they would get from ethanol, Holmstead said. These credits could be tradeable, he said.

Holmstead acknowledged that VOC trading is controversial because of the potential for creating toxic hot spots, but said a study has shown such a program in California could cut in half the cost of ozone reductions from VOCs.


Open-Market Trading Sought

Holmstead also said EPA wants to work with states to design and implement open market trading programs in which an increase in one pollutant could be offset by a reduction in another pollutant with offsets being tradeable.
Holmstead acknowledged that open-market trading programs have had problems and are not as efficient as cap and trade programs in single pollutants. But he said they offer advantages over traditional pollution control programs.

Open market trading programs in some states have had problems with monitoring and reporting emissions and keeping track of offsets and allowances (192 DEN A-5, 10/3/02 ).

Holmstead also praised pollution taxes, saying they have been effective in virtually eliminating CFC use and production since 1990. The President's Council of Economic Advisers has said environmental taxes are an efficient way to reduce pollution, Holmstead said.

However, they are unpopular politically and difficult to enact, he said.

Likewise, an auction of emissions allowances under programs such as Clear Skies is the most efficient way of allocating allowances, Holmstead said, but "I understand that companies do not want to pay for something they can get for free in the political process."

Utilities are pressing to have allowances allocated to them in Clear Skies based on historic emissions or energy use, not auction (18 DEN A-2, 01/28/03 ).

"I can't say it is our highest priority," Holmstead said of allocating emissions credits through auction.
By Steve Cook

Ooops. Forgot to post the source. BNA Environmental Newsletter. I'd link it, but it requires a password.

[ 05-02-2003, 10:59 AM: Message edited by: Timber Loftis ]